Sibanye-Stillwater: Investment Risk in Automotive Metals Industry

Sibanye-Stillwater's high-risk investment in automotive metals faces uncertainty due to shifting market demand and high production costs.

### Sibanye-Stillwater: Evaluating the Risk and Reward of Investing in the Automotive Industry
* 📉 The stock's P ratio is currently at **4.23**, but it reflects the **past 12 months**, not the **future**.
* 💰 Sibanye-Stillwater (SI) has a market cap of **three billion** and produces PGM metals, gold, and is now expanding into **lithium, zinc, and other commodities**.
* ⛏ Due to the cost curve and current prices, it's not profitable for **more than half of the miners in South Africa** to mine these metals.
* 📉 Investments in mining are needed to keep production stable, **not even for growth**, and SI has a **high level of investments**.
* 🚗 SI is an auto catalyst company, with the future use of **palladium, platinum, and rhodium in auto catalysts uncertain**.
* 💸 The adjusted free cash flows are **significantly negative** due to high investments, and if these investments do not lead to expected profitability, it's a **destruction of money**.
* 🌐 The automotive industry is transitioning to electric vehicles, and if the demand for metals shifts, it could impact **SI's profitability**.
* 📈 "I prefer to invest with **tailwinds**. Even if you make mistakes like buying at the wrong time in the short-term cycle, sooner or later you get rescued by the strong tailwind, the **structural tailwind**. Here we have a **headwind**."

good day fellow investors. I've made a deep dive into Sibanye-Stillwater, which is a very requested stock or has been over the last year. So smash that like button if you enjoy this. We will discuss the stock, the business cycle, the financials, and what are the key factors related to the risk and reward of investing in SI. Now let's immediately start with the stock. If you look at the P ratio now, it is 4.23. But always keep in mind the P ratio reflects what happened last 12 months, not what will happen the next 12 months. The stock price is reflecting there. The dividend is still looking good. The market cap is three billion. And now we have to see whether there is more value than that going forward or not. SI produces PGM Metals, gold, now going into lithium, zinc, and etc. And thus it is a producer of Commodities and it depends on the supply and demand for those Commodities. If we look at the business well, it is Diversified, mostly producing in South Africa. Now something battery

Metals in Argentina us some other things, and um we look at production. We see good production of gold. DD gold, I think, was the first goal there. PGMs okay, also producing in the US recycling nickel, and there should be more battery Metals coming online as they have invested a lot in these green Energy Solutions going away or better diversifying for on padium Platinum and rodium. That is the base of what they do alongside, of course, with the gold and their production there. So when I'm thinking why are they going into all these battery metals, well, they are diversifying and investing because perhaps they also know that the end is near for these Metals. More about that in a second. If we look at the cost curve, you can see that there are cheaper producers and there are more expensive producers cash costs and then also including capex and the prices now are a little bit lower than that. This is in South African rents, and the spot basket price is 23,000, and you can see that the

23,000 are somewhere here, so it's not really profitable to mine these metals for more than half of their the miners there, which means it's an ugly situation. Very few people will make money. This is for SI. They have a little bit of production also above the cost. They need to optimize or E thatb and then readjust the supply and demand in the sector as the biggest players there. And then something important to know about mining, that those are finite operations, and you need to invest a lot of money. If not, your production will simply go down like this in 10 to 12 years. Companies need a lot of money to keep production as high as possible, and then they will need to reinvest, buy new projects to keep things steady as that is. And you can see here the extreme high level of investments, and this is a typical chart. Don't think that the investments will be lower in 2026. The investments will again look like this, and then again look like this, because this is what they plan now, but then

there will be more, and there is always this 1 billion a year needed to be invested just to keep things stable, not even growth, even if they call it growth, but it is not really growth. It's keeping things alive. Gold operations, they have a lot of those, and if you look at it, a little bit less than half is not profitable. So they have extreme high gold mining costs, which was usually the case for South Africa with these deep mines, and the guidance is for production. If we look at sustaining costs for their production, they will not make a lot of money going forward. They made a lot of money as those prices were high. And let's look a little bit at their story to understand where they are investing their money. And then you can also understand the risk and reward of the pet they have chosen. And then of course see how that fits you. First, they discuss these batteries, the Revolution coming, how there will be more and more electrical vehicles sold. And then they discuss multipolarity, angry people, big squeezes, the angry.

Planet has something that has a huge impact on the way they do business, but I don't see it. A lot of big words in their present, it feels like they are a little bit lost because this is the reality. The reality is that use of rhodium, which was the greatest benefit to their revenue pile and profit last years. It's auto Catalyst 92%. 92% Platinum consumption, auto Catalyst, okay 42 jewelry industrial and then padium consumption, auto Catalyst 84.4%. So this company depends on, of course, some gold, some diversification, there a lot of money going into the battery Metals projects, but it is an auto Catalyst company. And if there are more cars sold with catalysts, great. But electrical, as they say in their presentation, don't have Catalyst. Does the use, the future use of padium platinum rhodium could be much, much lower, which means ugly. And they have started to diversify with these big words, battery, etc., but will it be enough is my question. And if I look at their revenues

their financials. You can see here, rhodium was the leader, then gold, palladium, for the first six months of 2023, but that is all AutoCat list. And yes, they have a good balance sheet that is in line with the cash, so nothing wrong there. But if I look at the cash flow analysis, the adjusted Fleek cash flows are significantly negative on the high investments. But if those investments do not lead to the profitability they expect, then that is destruction of money. And especially a company that knows how to mine pgms in South Africa now goes and expands into mining battery metals or things like that in Europe, etc. It's not that straightforward. Mining is a high-risk environment. And the first six months, you can see here, net cash from operating activities 272 more spent on investments. And that means that the cash flows will be negative going forward if the current prices persist. So let's look at the risk and reward in the sector for those prices. Number of charts sold worldwide, okay, things are slowly growing.

if we have a recession, this could be lower already. Then I found this projection from SAP Global Mobility research. So, everyone is going to electrified 30% BMW Jaguar. 100% electrified four doubles Investments GM Investments tantis 4 billion EV Investments by 2020. If we go to 2025 4 period 100% plug-in passengers cars in Europe EV lineup Bentley Jeep Toyota BMW Stellantis everyone is going 100%. And if you go 100%. And if this demand goes to here the next cost Curve will be like this. And yes, these guys will make money depending on also the industry Cycles. But as they say, Peak internal combustion engine is behind us. And when it comes to investing, I prefer to invest with Tailwinds. As Warren Buffett says, if you invest with Tailwinds, even if you make mistakes like buying at the wrong time in the short-term cycle, sooner or later you get rescued by the strong Tailwind, the structural Tailwind. Here we have a

headwind. And yes, you can make money after 10 years of ugly, like it was the case with coal last year, but that's not something you can bet your house on. And these are the projections. We don't know whether it would be fast, faster, slower, something like that. We just know that rhodium prices are still above earlier levels, and the boom here has passed, and we will see where will these prices go if we have a global recession in 2024. This will look even uglier. Palladium Futures are significantly down, so you cannot compare the p ratio four because it was made on higher past prices. Platinum is a little bit more stable, but if I look at this, the total revenue here for the last six months and uh just for the current prices in the second part of the year, the riita will be zero with high investments in a bad Market. You are then betting on a turnaround that you don't know where will happen because you cannot know when the next recovery will happen because if we have a recession.

Global recession or slowdown. Less car purchased, etc., etc. It's not just supply and demand for your industry and what you can control. It's also the interest rate on the lease for the new this or that car, their competition, etc., so there are a lot of moving factors. Perhaps the stock will boom, but you never know when will that be, maybe like this, maybe like this, and I don't think the fundamentals, especially not the cost of production, that this was always a little bit more expensive company. And keep in mind when you are a more expensive company, you have these big jumps and downturns, big jumps, because when commodity prices go up, you make a lot of money, and therefore sib is a more volatile producer. When there will be a turnaround, you make a lot of money. I prefer low commodities investments that make money in whatever environment, which means I can sleep well if there is a five-year recession, which is a costly thing, because when there is a boom, you already make less money because they make always money, but it

depends on the risk and reward you want to take. SI it's an automotive industry investment, which is not a risk I want to take, especially in this environment where we had great years for the automotive industry. I think they are a little bit OV exuberant, and I would wait for a big recession. Then you will see whether SI is still alive in what form, and then you might look at Automotive companies SI copper companies, whatever cyclical a mid-cycle too risky for me. I hope you have enjoyed this head value. You can check what I do my other videos. I'll see you in the next video.

Sibanye Stillwater Stock Analysis NYSE: SBSW

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Value Investing with Sven Carlin, Ph.D.

Sibanye-Stillwater has a low P ratio of 4.

23, with a good dividend and a market cap of three billion.

The company is diversified, with production in South Africa and the US, and is expanding into battery metals and green energy solutions.

The move into these metals indicates a strategy of diversification and investment in anticipation of a potential decline in traditional metals.

The cost curve shows a range of producers with varying costs, and the spot basket price is currently at 23,000.

The Challenging Economics of Metal Mining

Metal mining is becoming increasingly unprofitable, with the majority of miners facing a difficult situation due to high production costs.

The industry requires constant, substantial investment to maintain production levels, leading to financial strain for companies.

The high costs of gold mining, coupled with uncertain future profitability, are creating a risky investment landscape in the industry.

The Impact of Rhodium and Auto Catalysts on Company Revenue

The company heavily depends on the use of rhodium, platinum, and palladium in auto catalysts for the majority of its revenue.

Despite efforts to diversify into battery metals, the high investments have led to significantly negative cash flows, raising concerns about profitability.

The company's expansion into mining battery metals poses a high-risk environment, especially with the current negative cash flow trend.

The Projected Shift to 100% Electrified Vehicles in Europe

SAP Global Mobility research projects a 30% electrification of BMW, Jaguar, Bentley, Jeep, Toyota, and BMW Stellantis vehicles by 2025.

The investment in EVs by GM and Stellantis is set to double to 4 billion by 2020, with a projected shift to 100% plug-in passenger cars in Europe.

The ongoing increase in rhodium prices and the decrease in Palladium Futures raise uncertainty about the future market trends, especially in the event of a global recession in 2024.

Factors Affecting the Automotive Industry in a Global Recession

The automotive industry is highly sensitive to economic downturns, making it a risky investment.

High production costs make the company more volatile, with significant fluctuations in profitability.

Instead, the preference is for low commodities investments that can generate consistent returns, especially during a recession.